Victor and Rich both observe that the era of enormous borrowing should be on the wane with the GOP pick-ups in both houses of Congress. I certainly hope that’s right. But it will be cold comfort if, instead of running up the debt through the front door of borrowing, we exacerbate the problem through the backdoor of monetary policy that decimates the value of our holdings. Kevin has been sounding the alarm on this and, at Exchequer, he covered today’s widely derided but expected decision by the Fed to purchase what could end up exceeding a trillion dollars in Treasuries. In fact, in its primer on “quantitative easing,” the Fed’s approach, the Wall Street Journal says some experts project that Fed purchases will reach two trillion dollars.

Thomas Hoenig, the Kansas City Fed president, dissented from decision announced at today’s Federal Open Market Committee meeting. He has labeled the effort to stimulate the economy in this fashion a “deal with the devil” that could eventually lead to runaway inflation and other economic destabilization.

This form of stimulus is not going to bring recovery any more than the mountains of debt have. As Kevin put it, ”it will take congressional action to clear away the barriers to saving, investing, and production that are preventing a robust recovery” — a profound challenge, particularly given that Congress itself has been a big part of the problem, and it doesn’t have the votes to do anything without President Obama’s (unlikely) cooperation. Let’s hope this new Congress is up to it. I may be a terrorism guy, but this is the stuff that really scares me.